by Valerie Sartor

When Martin Posth took on the mission to manufacture the highest quality car in China he was 40 years old, comfortably ensconced in Germany working as personnel director of the Audi Management Board, and oblivious to the cultural challenges he would face.

1000 Days in Shanghai: The Volkswagen Story - The first Chinese-German Car Factory (2008, John Wiley & Sons, English translation) is his immensely readable memoir; a sweetheart well worth curling up in bed with after a long day at the joint venture (if only for the problem-solving pillow talk). Insightful, this first-hand account of an automotive biz journey recounts the metaphoric potholes and red lights he hit along the way building the VW Santana automobile factory.

Mr. Posth moved with his wife and two daughters to Shanghai in September 1985, a time when living conditions, the now defunct foreigner currency, and rigid state-owned business practices were the norm. True, China has advanced light years since then, but 1000 Days in Shanghai is “a historic document on the Open Door Policy for foreign investors” according to Prof. Xu Kuangdi, former Mayor of Shanghai (1995-2001). I also concur with this illustrious opinion, and urge any potential entrepreneurs and expats itching to do business in contemporary Middle Kingdom to read this fascinating account.

Mr. Posth’s intimate narrative gives anyone interested in China and business a jolt in perspective. He recounts automotive history and vividly depicts how fast and how far the country has modernized, all the while instilling venture virtues into China’s uninitiated or flummoxed.

In 1978, Minister of Machine Building Chou and his entourage were exploring the West as part of Deng Xiao Ping’s Open Door Policy. Minister Chou spontaneously dropped in, on foot no less, to see the VW Sales Director Dr. Werner P. Schmidt. The foreign dignitary had expected to see Mercedes rolling all over Germany; instead he saw Golfs and Beetles and knew this company would produce his next set of wheels.

The Chinese needed cars and they viewed automobiles as appropriate symbols of a modern economy. Japanese and American executives rejected tentative Chinese overtures for cooperative ventures but the Germans leapt for it, astutely recognizing China as the automobile market for the 21st century, offering to build cars for internal use in China and to export some engines for external use in the West.

Together with the Germans the Chinese formed Shanghai VW Automotive Company, Ltd. in 1984, which became the first joint venture between Chinese and Westerners in machine building.

Enter Martin Posth, a man who did not initially want the job of making Santanas (the local version of the Volkswagen Passat.) Luckily he was the ideal foreign expert because his specialty is in human relations rather than working as a controller; successful joint venture collaboration in China is determined by human interaction, not engineering. In fact, over 80% of the joint ventures between foreigners and Chinese fail, not from poor funding or bureaucratic snafus, but because of poor cooperation and mutual intercultural communication.

The situation was not good in September 1985 when Mr. Posth, his family, and his German team arrived in Shanghai. Only two, as opposed to the European quota of 1000, Santana cars were being assembled daily. The auto factory in Anting was below standard, from the toilets to assembly line methods. No one had any experience doing business with the Chinese.

Mr. Posth’s candid and pragmatic memoir/manual points out the keys to his success. He stresses that it is important to adopt an “imaginative approach” and to pay attention to Chinese cultural nuances. For example, the Chinese make long, elaborate speeches, but they are not simply ceremonial: foreign businessmen can learn something about the state of a mutual relationship by paying close attention.

Mr. Posth encountered many growing pains and problems. Some required blind eyes and diplomatic moves. For example, mercury was found in the automotive paint, and Posth raised a hazard alarm. When the paint mysteriously disappeared, dumped into a nearby river, he could do nothing; so he dropped it.

Other challenges appeared.

Building equipment and materials seeped out of his factory to a neighboring SOE that had been set up as a rival. Secrets, technology and great workers also emigrated to the competitor.

Early on he faced the need for substantial and unexpected capital to train the Chinese workforce on all levels. Determined, Posth convinced his bosses in Germany to give him the funding to do this. It was a good investment. The Chinese more than lived up to their half of the deal; the Germans found them amazing, dexterous and eager to learn.

Incidentally, Mr. Posth writes that Chinese girls in automobile factories are the best workers in the world. VW training has since become an iconic role model for all joint ventures.

Other problems: Contracts were breached. During his tenure in Shanghai the Chinese also started to push him to manufacture Audis rather than Santanas, changing the deal entirely. He stuck to the Santana, a “rock-solid, middle class car.” To add insult to injury, cost-of-goods were always higher for the “long noses” than for the natives. His Chinese employees had a state-directed economy mentality; waste and lack of motivation was rife. Shipping parts went missing. Mr. Posth persevered. He felt that once VW became a credible success these things would fade away.

Foreign competition also appeared over time. Beijing Jeep opened a factory in 1984 and Citroen did in 1992, but until recently none were as successful as his Santana factory.

His own German engineers were sometimes too direct and steadfastly loyal to the home office in Germany. In the book he states “our biggest problem was not the Chinese, but frustrated Germans.” They also cost 200 times the salary of a Chinese worker, thus creating further resentment.

But the Chinese seemed hesitant to take personal responsibility for their actions. To combat this and to stimulate employees at all levels he instigated a performance oriented remuneration system to get workers more involved.

More problems appeared: Chinese managers bled financial disclosures to Chinese central authorities. He warns in his book not to believe in the private and public market fairy tale. Political connections are alive and well in China as guanxi. Mr. Posth recommends that foreign businessmen build their own connections, and admonishes them to never rely completely on the authorities in the province where their business is located. Instead, establish contacts at all levels: in Beijing, in the principality, and up the bureaucratic ladder.

The Chinese have a saying regarding joint ventures: “We sleep in the same bed but do we have the same dream?” Mr. Posth realized that he must create a workforce that was united in a vision and had a mission. In this advice-packed book he advocates good nerves, the right arguments, patience, and endurance to deal with the miasma of cross cultural challenges. To solve the most fundamental issue of uniting the entire staff, Mr. Posth created a winning mission statement: Shanghai VW would establish the most modern, the biggest, and the best automobile factory in China. Together with expat and Chinese alike, this is exactly what he did. Sang Ta Na, as the iconic car is called in Mandarin, did indeed become the number one seller in China.

After three years Posth returned to Germany to serve on the Volkswagen management board but he returned to China heralding the Asia-Pacific business of the entire Volkswagen Group in the 1990’s. China deemed him an “Honorary Citizen of Shanghai” in 1997. Rightly so: Under his supervision automobile production increased from two vehicles per day to an annual capacity of 60,000 units, and now puts out 1.08 million units in China every year.

    Channel: Movers & Shakers     |